Dow Slides 20.57 in Late Trading : Weaker IBM, Lower Dollar Dampen Market Enthusiasm
Stocks retreated from record territory Wednesday as weaker IBM shares, a lower dollar and weaker bonds drained optimism from the recently euphoric market.
But the Dow Jones industrial index held the 2,700 level against a wave of afternoon selling, ending 20.57 points lower at 2,701.85.
Government bond prices retreated, giving back most of the previous day’s gains in light trading. Analysts attributed the decline in the market for Treasury bonds and notes to rising oil prices and a persistently high overnight bank lending rate.
IBM, hit by negative reports from analysts, dropped 4 1/8 to 167 7/8 and was the most actively traded stock of the session.
“IBM sent a chill through the entire market,” said Richard Kehne, an analyst at S. G. Warburg. “IBM is the bellwether stock, and its slide hit an already nervous stock market.” He noted that other stocks fell with IBM, especially technology issues.
Declining stocks were ahead of advancing issues by a margin of about 4 to 3, with 893 stocks down, 681 up and 407 unchanged on the New York Stock Exchange.
Last Hour’s Plunge
Big Board volume totaled 196.19 million shares, down from 213.48 million in the previous session.
The Dow industrial index fluctuated in a narrow range for much of the session before dropping sharply in the last hour of trading.
However, “the broad market wasn’t so bad,” said Robert Colby, an analyst at Smith Barney, Harris Upham & Co. “It looks like the little stocks held up better.”
Ralph Acampora, an analyst with Kidder, Peabody & Co., called the decline “a normal correction,” Wall Street’s term for a pause in the market’s upward momentum.
“It’s not unusual to see a pullback and a little profit taking the day after” the Dow industrials reach a record high, said Alfred E. Goldman, a vice president with A. G. Edwards & Sons Inc. in St. Louis, noting that investors have been following a pattern in recent months of setting records and then selling off in subsequent sessions.
On Tuesday, the closely watched blue-chip indicator rose more than 25 points to reach its 55th record high close this year.
Among the winning stocks were tobacco companies, still riding high after a ruling Tuesday by a federal appeals court that said warnings of the hazards of smoking on cigarette packs are sufficient to protect tobacco companies from lawsuits stemming from smokers’ sicknesses or deaths.
Loews Corp. soared 6 1/2 to 87; Philip Morris added 2 1/2 to 122 3/8, and RJR Nabisco rose 1 1/2 to 70 3/8.
Other gainers included Allegis, which jumped 2 5/8 to 98 3/4 after Lufthansa said it was interested in acquiring the travel company’s Hilton hotel chain.
Declining issues included Digital Equipment, which slid 3 7/8 to 190; Dupont, which fell 3 1/2 to 124 7/8; General Electric, which slipped 1 1/2 to 64 1/8, and Sears, Roebuck & Co., which fell 1 5/8 to 56 7/8.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 230.1 million shares.
The Treasury’s 30-year bond fell 1/2 point, or $5 for every $1,000 in face value, pushing its yield up to 8.98% from 8.94% Tuesday.
Corporate and municipal issues were mostly unchanged.
Separately, the Treasury sold $9.8 billion in two-year notes for an average yield of 7.86%, up from 7.66% at the July auction of two-year notes and the highest rate on such issues since 8.05% May 20.
Meanwhile, a rally in oil prices, which was traced to reports of a September meeting of two Organization of Petroleum Exporting Countries committees, suggested to some bond traders that inflation could be accelerating. That would erode the value of fixed-income securities.
Rise in Fed Funds Rate
Bond prices were also being hurt by speculation about the reasons for a relatively high federal funds rate, the interest banks charge each other on short-term loans, according to William Sullivan Jr., director of money market research for Dean Witter Reynolds Inc.
The federal funds rate finished at 7.25%, up from 6.87% Tuesday.
Sullivan said the funds rate has been relatively high for three consecutive days, encouraging speculation that the Federal Reserve Board may be tightening its credit policy in support of the dollar.
“We don’t have firm evidence that that is happening, but it was one factor behind the decline in bond prices,” he said.
